Author: johnhawthorne

The problem politicians won’t talk about: Financialization

Since the November election, there have been scores of books and articles exploring the supposed alientation of the white working class. Some of these are quite good and others are much less so. Maybe voters were feeling nostalgic. Maybe their cultural locations had been ignored for too long. Maybe they were victims of a shifting occupational structure that resulted in a combination of moving jobs overseas or automating manufacturing plants. Maybe the coastal elites didn’t want to understand those inland. Maybe concerns about security overwhelmed other more self-interested factors. Maybe a focus on progressive issues like transgender bathrooms and criminal justice reform didn’t speak to the concerns of those voters. Each of these arguments shares some elements of truth.

During the primary campaign Bernie Sanders consistently complained about “millionaires and billionaires” who had benefitted the most since the end of the Great Recession. Others raised concerns over the need to raise the minimum wage or solve the health care crisis. Still others voices cited the damage being done by excessive inequality and raised concerns about the fragility of the middle class. These positions are also easily supported by data.

There is, however, something much deeper going on. The vast majority of the issues I’ve listed above are simply symptoms of that deep change. In his book, Aftershock, Robert Reich argues that the period from World War II until 1980 constituted a Great Expansion. Then we had a great transition. While “Reaganomics” played a role in this change, it’s only the political face of the larger issue.

 I recently read two books that speak to the critical change and its significance. The first of these was Brian Alexander’s Glass House;  an examination of the impacts of financialization on the Anchor Hocking plant and its community of Lancaster, Ohio. The other is Charles Peters’ We Do Our Part; a political and social  autobiography by the octogenarian editor of Washington Monthly.

Peters’ book, which was commissioned by Newsweek’s Jon Meacham (which is why I bought it), begins just before the New Deal begins addressing issues of the Depression. Growing up in West Virginia, Peters saw the impacts of the New Deal up close and became a fan of FDR from early on. The book runs all the way to the 2016 election. In the very first chapter, Peters observes that the key figures involved in FDR’s administration weren’t serving for access to money or prestige but because problems needed to be solved. When they left government, there was no revolving door to well-appointed lobbying firms. It wan’t long before that trend changed and changed dramatically. Peters also explores shifts in economic policy beginning with Reagan but continuing in general shape until the present. Deregulation became the watchword of the day for Republican and for Democratic administrations alike (although the rhetorical justification shifts by party).

Peters spend a couple of chapters laying out the connections between a focus on New York City (because that’s where the money is), its style magazines that explain What’s In, salaries that support that lifestyle, and attitudes of those who are OC (not Our Class). This adds texture and context to the Bernie Sanders “millionaires and billionaires” complaint that moves us away from greedy individuals (although they exist) to larger structural and therefore sociological dynamics.

Peters’ argument reminded me of a book that Bob Woodward wrote about the first year of the Clinton administration: The Agenda. I haven’t read it in years, but the essence of it was that Clinton got his tax cut through (because VP Gore voted for it) as an expression of Clinton’s hope for a Third Way — to promote progressive policies by doing things that would benefit the bond and stock markets.  Clinton’s “end of big government” as illustrated in the Welfare Reform Act is consistent with the commitment to the financial system. As history tells us, by many measures Clinton’s agenda was successful — the government had an operating surplus and the stock market boomed.

As a democrat himself, Peters is generally supportive of the Clintons but he was obviously troubled by the circles the Clintons traveled in when they settled in New York City. Seen through the lens of Peters’ book, the high speaking fees (to financial firms, no less), celebrity status, and the Rolodex of the Clinton Global Initiative are fairly predictable. Peters points out that Obama was more circumspect but he had to be very careful about how he dealt with the financial industries in the midst of a precarious economic recovery.

Eisenhower’s defense secretary (formerly head of GM), Charles Wilson, once argued that “what was good for General Motors was good for the country and vice versa”. It’s interesting to think of that quote in light of the economic transitions of the last six decades. For all of the complaining about off-shoring or about Obama’s auto bailout, I think it is exactly what Wilson is calling for.

Today, of course, it’s more accurate to read Wilson’s line as “what is good for Wall Street is good for America”. And without the “vice versa”.

Improving stock price is key to business success and because the Republican mantra for four decades has been about rewarding the “job creators” (regardless of whether they add jobs), it has become the major objective in our economy. Well beyond the increase in compensation for executives is the practice of providing stock options, directly incentivizing the CEO (but not the workers) in seeing the stock perform as expected. This focus on stock price not only leads to short-term business strategy but it also results in (perfectly legal) game playing to kept the stock price high. The impact, as Peters describes, is clear:

Let’s take one company and see the impact of these buybacks on its workers. Over the past ten years Wal-Mart has spent an average of $ 6.5 billion a year on stock buybacks. This would have been enough to give each of its 1.4 million U.S. workers a $ 4,642 raise for every one of those years. So Congress or the SEC could make a good start on reforming the system by simply reinstating the regulation that prohibited buybacks.

A focus on share price above all creates the bizarre situation where stocks are abstracted from investments in companies. When traders move their server farms next to the NYSE server farms so that their algorithms gain a microsecond for arbitraging stock prices before the rest of the market catches shifts, they aren’t making the company better. They are just getting rich playing the market.

Of course, we are all increasingly complicit in this new financialization. My 401-K account, like virtually all others, is tied up in mutual funds managed by folks I’ve never met and never will. I’d love us to rethink our dependence on stock market expansion but my retirement (along with that of millions of others) depends on market expansion. 

So when Trump supporters say that the system is rigged against them, they’re right. They are just looking at the wrong system. It’s not a failure of government, it’s the success of the financial market. By operating as it’s supposed to operate, unfettered by government, press, or public opinion, it provides success for some at the expense of a great many others.

That brings me to Brian Alexander’s book on Lancaster, Ohio. It is a wonderful account of the changes that occurred in this medium sized manufacturing town as these economic transformations took hold. It was made poignant by the fact that Alexander grew up in Lancaster.

The Anchor Hocking plant (famous for Pyrex and other kitchen ware) was one of the true “anchors” of life in Lancaster. Executives lived in the town, it was a place where young high school graduates worked their way up into responsible production roles (in a very dangerous profession). Anchor and its employees were leaders in the community and cared for its general wellbeing. The plant found community to be very important: both the community in which they were located and the way in which the plant employees related to one another.

While Anchor had issues with competition from Libby, keeping up with plant maintenance, and the fluctuations of the business cycle, the real issues with financialization began in the 1970s. Raider Carl Icahn was a minority stockholder in Anchor after it had good public and engaged in “greenmail” to force changes in the company (or he’d weaken the stock value). Shortly thereafter, Anchor becomes a pawn in a series of what we used to call “leveraged buy outs”. Sometimes the new entity combined Anchor with other kitchen products in an attempt at horizontal integration. Sometimes it was the piece spun off and the company changed hands.

As these practices continued, it had devastating effects on the company. Workforce reductions were common and union contracts were “renegotiated”. When a new group of venture capitalists took on the company, their primary interest was to improve its short term safety rating and not to enhance the capacity of the plant to retool (to say nothing of dealing with deferred maintenance). Why safety? It stood in the way of selling the plant to the next group of potential investors after the first group had gotten from it what they could. But if it had a good safety rating, selling was a positive option (for the owners, not the plant).

Furthermore, each of these transactions wound up loading Anchor with the debt involved in the other acquisitions. This led to Anchor having to declare bankruptcy in 2015 as a means of eliminating the debt load. As a result, the board of directors was made up entirely of the creditors who knew nothing about glass production and were only looking to get out of the glass business as quickly as possible so as to move on the next option.

None of these people had any history in Lancaster. They didn’t care about the yearly folk festival. They weren’t likely to prop up the very successful alternative school. They weren’t going to run for mayor or see that the town competed with more affluent suburbs closer to Columbus. 

Alexander tells part of his story by tracking the lives of some neighborhood residents who were involved in the opioid epidemic through sales, use, or both. Their feeling of being tied to Lancaster while simultaneously not seeing hope for the future shows a serious indirect impact of the acquisitive financial markets that enveloped Achor Hocking and therefore Lancaster.

One of the toughest parts about sociology is that it often finds that a search for villains is futile. People respond to the social structures in which they are imbedded. It’s not enough to suggest that billionaires are gaining at the expense of the working class. We need to examine the imbedded incentives that are part of our systems and figure out how to make them just a little more fair.

I’m not suggesting that Wall Street is evil or that sometimes plants don’t need to close (although I really have a hard time with micro trading). Capitalism depends upon balancing economic and social interests. It recognizes that we actually have multiple markets, not one. Gains by one part of the economy (investors) at the expense of another (workers or consumers) create an unstable system.

Citizens United said that corporations were legally citizens when it comes to political speech. Many, including me, have criticized that decision. But the solution is for corporations and their governing boards to be real citizens who engage the life of the communities impacted by their operations.

Voters often tell pollsters that they think that having someone with a business background will help solve the problems of governing a complex modern society. But investing in real estate has little resemblance to what the preamble to the constitution calls “promoting the general welfare”.

As we work our way out of the current governmental disunity, we need politicians of both parties to join economists, political scientists, journalists, and sociologists in finding an appropriate sense of balancer in the economic marketplace. 

At the end of the day, what is good for Americans is what is good for Wall Street.

President Trump’s Religious Freedom Executive Order

Trump Religious Freedom

On Thursday, while the House of Representatives was rushing through their Health Care Overhaul, President Trump signed his promised executive order “promoting free speech and religious liberty”.

The President, as quoted in the Washington Post, explained his position: “For too long the federal government has used the power of the state as a weapon against people of faith, bullying and even punishing Americans for following their religious beliefs,” Trump said, later telling those gathered for the event that “you’re now in a position to say what you want to say . . . No one should be censoring sermons or targeting ­pastors.”

I notice two things at the outset about these comments. First, he’s absolutely right about his last statement: nobody should be censoring sermons on behalf of the federal government. Of course, that has never happened and never would and the logistics of how one would do that completely fail me. But credit where credit is due.

Second, let’s ponder the claim in the first statement — the federal government has used weapons against people of faith, has bullied them, and even punished them. This assertion is wrong on its face, with the exception of Native Americans and Mormons earlier in our history. (There was significant anti-Catholic bias but that only indirectly involved the federal government). The assertion of intent by a secular government that hates religion may play well to an audience who believes they are regularly discriminated against but it cannot be supported by facts, especially when the leaders of government continue to be overwhelmingly Christian.

Still, the Executive Order was a major part of President Trump’s campaign so it’s worth looking at what it says. My twitter feed has been full of reactions. My short take is that if the Alliance Defending Freedom doesn’t like it, it didn’t do much. Reviewing its elements make the order’s symbolic role pretty clear.

Section 1 says that “It shall be the policy of the executive branch to vigorously enforce Federal law’s robust protections for religious freedom.” It goes on to celebrate the role of religion in the public square and asserts that the administration will protect that constitutional right. Of course, the president swears to uphold the constitution in his oath of office, so this is just a reminder and not new ground.

It’s worth watching this language, however. Increasingly, courts have been using the administration’s claims (including statements during the campaign) as embodying intent. So when the White House claims it will protect the freedom of religious groups to exercise their religious views without interference from the government, that doesn’t just apply to conservative religious groups. It applies to Muslims and the non-religious as well.

Section 2 makes a stab at Trump’s complaints about the Johnson Amendment. In short, this section says that the Treasury Department will not engage in adverse actions in response to moral or political speech by churches or pastors. It’s well documented that this has almost never happened, that pastors of various political persuasions have engaged in Pulpit Freedom Sunday (openly defying the Johnson Amendment IRS rules) without penalty, and that many churches have spoken on moral and political issues for years. For all of Candidate Trump’s pronouncements about killing the Johnson Amendment, the language of the EO was clearly done by a crack team of lawyers:

In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury.

Section 3 speaks to religious conscience protections for those opposed to the contraceptive mandate in the Affordable Care Act (which is not mentioned by name). The concern for some groups has been that the regulations implementing the contraceptive mandate included methods they believed were abortifacients. This was the basis for the Hobby Lobby decision. The EO instructs government entities to “consider implementing amended regulations” to “address conscience-based objections“. On the one hand, the courts have already been involved in encouraging the various parties to find reasonable accommodation. On the other hand, if the AHCA were to become law, it’s unclear what the status of the contraceptive mandate is going forward anyway.

Section 4 instructs the Attorney General to “issue guidance interpreting federal liberty protections in Federal law“. This section is the one that rang alarm bells for my progressive friends — what does this allow AG Jeff Sessions to do? I understand that concern, but this order doesn’t give Sessions any more freedom to do this that he already has. In fact, issuing guidance about Federal law is pretty much the first thing on the Attorney General’s job description!

The final two sections are pretty boilerplate. If one of the first four sections was unconstitutional, the others could stand. If you thought that language in here allowed you to break a Federal law, it doesn’t.

So, on balance, the Executive Order doesn’t change much of anything. With the exception that it affirms a robust Federal commitment to religious freedom that I believe will be used by non-majority religious perspectives to claim their freedom to worship (or not) as they please.

Those that were somehow hoping that the Federal Government would carve out a protected role for Conservative Christians to live out their faith commitments over and against other groups will be naturally disappointed. All the Federal Government has the capacity to do, regardless of who is in the White House, is to affirm the vital role of a robust public square.

The Executive Order closes section 1 by stating this explicitly: “Federal law protects the freedom of Americans and their organizations to exercise religion and participate fully in civic life without undue interference by the Federal Government.  The executive branch will honor and enforce those protections.

 

Big Surprise! White Evangelicals are Republicans

If your social media feed looks like mine, the world is suddenly surprised that a new Pew Report shows that 78% of White Evangelicals are supportive of the job President Trump has been doing over the first 100 days. Unlike patterns that seemed to be evident during the Republican primaries a year ago, those who regularly attend church at least once a month seem most supportive of the president.

It doesn’t help that Jerry Falwell, Jr. claims that “evangelicals have found their dream president”.

The Pew Report contained a link to a September report that helps explain this data. As their chart shows, the alignment between White Evangelicals and Republicans has shifted significantly in recent years.

Evang Rep

As I estimate the numbers on the chart, when George W. Bush was elected over Al Gore, White Evangelicals favored Republicans by under 30 percent. Sixteen years later, the gap has nearly doubled.

This data is very consistent with some analysis I’ve been doing using the Pew 2014 Religious Landscape Study. I gave a preliminary analysis of this research this past weekend at the Henry Symposium on Faith and Politics at Calvin College.

For some time, I’ve been trying to sort out what is going on with White Evangelical voters. Like many others, I’ve wondered how religious values influence policy preferences and resulting voting decisions.

Last month Gallup did a report that gave a clue to what was going on. The researchers examined data on how religious variables related to support for Trump and found the kinds of church attendance patterns frequently cited. But when they controlled for political party and only looked at Republicans, the religious differences disappeared!

Taking Gallup’s lead, I went into the Pew 2014 data and began examining the handful of policy variables they ask about. I found two very different patterns: one set for what I call “conservative issues” and another for what I call “moral issues”.

The conservative issues are policies that do not have obvious religious influence (I know that there are sound scriptural reasons for engaging these issues but that’s not how conservatives are seeing them). I examined four different issues: belief that welfare creates dependency, that environmental policies cost jobs, that immigration is harmful, and that small government is good.

The moral issues are the kinds of things more likely to be addressed in sermons: abortion should be illegal in all/most cases, opposition to gay marriage, concern over children born out of wedlock, and  belief in absolute right and wrong.

I calculated the percentage of Republicans supporting the various positions to see how they varied by religious variables. What I found was surprising but exactly what Gallup found — on conservative issues religion isn’t a factor; on moral issues it is.

I’ll give one example of each issue: Welfare Dependency and Gay Marriage show the patterns well.

Screen Shot 2017-05-01 at 10.10.26 PMScreen Shot 2017-05-01 at 10.10.46 PM

The religion variables are fairly standard: do you claim to be born again, how often do you attend church, how important is religion, religious tradition (as characterized by Pew), and a measure of religious orthodoxy. The red bar at the bottom shows all Republicans without considering religious variables.

The conservative issues of welfare dependency is remarkably stable. There is very little difference between the religious subcategories. While there is slightly higher variation among some of the other issues, their overall pattern is similar.

On the other hand, there is significant difference among Republicans by religious category on moral issues like Gay Marriage. The other moral issues show similar patterns, again with some variation.

What does this mean for our contemporary politics? I believe we are in a period where the moral issues have taken a back seat. While abortion was indirectly related to a Supreme Court nominee, any Republican nominee was likely to hold that position. In the aftermath of Obergefell, gay marriage fades in significance as a political factor.

This is, in fact, what the Trump campaign claimed all along. While Candidate Trump made noises about the Johnson Amendment and saying Merry Christmas, the heart of his argument was about borders, government, jobs, and safety. These were all hot-button conservative issues.

Furthermore, to go back to the Pew chart at the top of this post, when you have 76% of White Evangelicals identifying as Republicans it just doesn’t make sense to treat them as a conceptually distinct category. Especially when the moral issues are not of high salience when the questions are being asked.

This alignment will be problematic going forward, more so for Evangelicals than for Republicans. As the general public (especially Gen-X and younger) see such a strong alignment, they will likely flee both Evangelicals and Republicans. Over the long run, it may well become considerably harder for Evangelicals to be heard even on moral issues.

Attica 1971: Heather Ann Thompson’s “Blood In The Water”

I tell my students that there were five radicalizing events that led to me being a sociologist, although I didn’t know it at the time. It started with the assassination of Martin Luther King in April 1968. I was old enough to have been following the civil rights movement and understood how the killing was a reaction to a quest for justice. That was followed just two months later by the assassination of Bobby Kennedy. Because I was Kennedy campaign chairman in my eighth grade history class, I’d gotten my Very-Republican grandmother to drive me to Kennedy headquarters to pick up campaign paraphernalia. And now he was dead. In May of 1970, four students were killed by the Ohio National Guard during a Vietnam War Protest. That introduced me to the idea that government officials might act badly. Between 1972 and 1974, I watched in fascination as the President of the United States had his illegality exposed and resigned the presidency in disgrace.

But one of the most pivotal moments for me happened with the Attica uprising in September 1971. The year before, I had done a research paper in English class about the need for prison reform. I read up on Quaker reform efforts and issues of mistreatment and poor conditions. I had interviewed someone from the Indiana Department of Corrections as a source. Looking back, it wasn’t surprising that one of my first career goals after majoring in sociology was to be a prison administrator working to reform the system from inside.

So when the prisoners at Attica took over cell block D, I was transfixed by the news. There were accounts of how William Kuntsler was helping the prisoners present demands to the prison administration. The situation had the possibility of reaching an amicable conclusion until one of the guards who had been taken hostage died. Even then, we watched to see how a resolution could be found. On the third day, NY State stormed the prison. Over 30 prisoners were killed and hundreds injured. Ten of the 37 hostages were killed in the retaking. The loss of hope in a possible reform movement was very real to me and I was disturbed that (as I heard it at the time) that the hostages had died in “the crossfire” (the prisoners were unarmed).

 

I just finished reading Heather Ann Thompson’s Blood in the Water: The Attica Prison Uprising and Its Legacy. It is a remarkable reselling of the Attica saga with incredibly detailed documentation. It was a finalist for National Book of the Year. It not only filled in lots of details for the story i already knew, but more importantly it showed how much of the story I thought I knew had been manufactured.

More importantly, there is a great deal of this story from 46 years ago that speaks directly to issues of today. I’ll return to those but first let me lay out the structure of the book. It opens with a short history of prison conditions in the late 1960s leading up to the specific concerns at Attica. The next sections tell the story of the uprising and the retaking. Following this, there are the recriminations and the attempts to keep quiet what really happened. The balance of the book deals with the legal proceedings: first, the criminal trials of prisoners, then the civil trials of prisoners against the NYSP, then the attempts for the families of the dead hostages to get some kind of reparation from New York State.

If you’re interested in mass incarceration, the criminal justice system, government, race, and their interactions, this is important but difficult reading. Between the brutality of the retaking to the improper actions by prosecutors to the stonewalling of the families, it’s hard to imagine that the structures of government could act so callously toward human beings. I won’t detail all of the factors here, but do want to explore some themes of from Attica that we must hear today. Because nearly half a century later, the echoes of these themes can be heard very loudly.

Racism is Real: It is stunning how much everyday racism is a part of the pre-uprising Attica story. Complaints about prison conditions were dismissed as being orchestrated by Black Nationalists who wanted to overthrow the government. This isn’t only true of guards and police officers, but are sentiments shared by the Governor, the US Attorney General, and the President. Even the prisoners who were white were punished for being N-lovers. The idea that prisoners at Attica were part of a nation-wide conspiracy is surreal and yet it was easy for people then (and probably now) to believe the worst.

Power is a Dangerous Drug: When the prison was retaken, the brutality of the state police and many guards was hard to take. The Attica uprising occurred one month after Phillip Zimbardo conducted his famous prison experiment at Stanford. He found that people playing the role of guard were likely to engage in brutality and derision of those playing the role of prisoner. Even the guards who weren’t sadistic made no attempt to stop those who were. After Attica was retaken, guards make prisoners run a gauntlet naked and barefoot over broken glass while being beaten with sticks and other weapons. Because they could.

Bad Actors Flourish in Bad Systems: One of the most striking parts of the Attica story is that the State Police intentionally violated their protocols when preparing to retake the prison. They didn’t record who had which weapon. The removed their badges and any other identifying information. When they stormed the prison, they were able to shoot indiscriminately at unarmed prisoners who had just been gassed. Under these circumstances, it would be very difficult for “good apples” to make a difference.

The Truth is a Common Casualty: The men who stormed the prison had been waiting outside for two days for permission to go in. Such collective behavior gives way to rumor and incitement. Early reports were that the prisoners had brutally attacked their hostages, castrating one and throwing the one who died off the catwalk. Once the retaking occurred, they claimed that the prisoners had slit the dead hostages’ throats. They tried to get medical personnel to change or at least suppress the autopsies that showed that wasn’t the case. When the prisoners got to their criminal trials, the authorities encouraged other prisoners to perjure themselves in exchange for transfers. The lawyers representing the State regularly withheld evidence of wrongdoing. That this story got told is only due to the perseverance of dedicated people who would not allow the story to be quashed, even though it took decades for the truth to get out (and then sporadically).

Political Leaders Will Be Self-Protecting: While there are some good government leaders (I believe Russell Oswald tried his best early on), much of the Attica story involves cover ups and a failure to admit wrongdoing. Attica was seen through a political lens and if the leadership didn’t hold the line, they believed that they would encourage other uprisings. But holding the line meant distorting the truth, obfuscating, or using bureaucratic technique to protect themselves (tricking the hostage widows into signing workers comp agreements so that couldn’t sue was especially galling.)

The Story Takes Time: When news of the uprising broke, it was national news. So was the retaking. Although the news passed along the “died in the crossfire” version of the story when in fact the hostages died due to the gunfire of the policemen and security guards who stormed the prison. The ongoing story of the attempted prosecution of prisoners, the civil suits of prisoners and hostage families, and the various commissions that explored what happened over those days were only known to those paying attention in Upstate New York.

We Believe Criminals are “Other”: So much of the response to the uprising depended upon believing that they were dealing with savages who couldn’t handle common society. That’s why their concerns about proper medical care weren’t heard. They weren’t deserving of proper care. It was striking how many individual stories involved some relatively minor offense that was coupled with a parole violation that landed prisoners in Attica to begin with. But because they were savages, it justified treating them violently and minimizing their chances in court.

Blood in the Water sheds a great deal of light on these horrible days in the American Criminal Justice system. As I wrote above, it’s a painful read. But it also shines a light on our contemporary struggles to create a humane criminal justice system. Reading the book provides new insights on what happens in officer-involved shootings, of press coverage of events, and of politicians who thrive on complaints of lawlessness.

The seven lessons I highlighted above require our attention as a society. It is only in that attentiveness that we prevent events like those in September 1971 from repeating.

Oreos, Family Dollar, and Health Care Reform

Even before the American Health Care Act was officially released this week, I have been pondering a large issue underpinning efforts on health care reform. To be fair, this issue affected the Affordable Care Act as well.

Here’s my issue: Free Markets aren’t Free in all Cases.

Free Market ideas make sense if we think about consumer choices as open and free in a microeconomic fashion. When I go to the grocery store, I get to choose what kind of cookies I buy. Nabisco keeps inventing new versions of Oreos to keep me thinking I need new options. And if Peeps Oreos fails (as it deserves to), they can just stop producing them and keep my brand loyalty.

At the macroeconomic level, markets make sense. If we can find ways of incentivizing private firms toward infrastructure investment, we shift the cost curves allowing them to gain return on investment while meeting a definable public need.

But I’ve been thinking about an segment of the economy where it’s hard to make free markets work. In what I’d call the meso-economic level, it’s hard to understand how we structure appropriate investments and returns that maximize consumer choices (as Hayek and his followers would want).

Efforts at Health Care Reform break down in the meso-level economy. 

The claim that “if you like your doctor, you can keep your doctor” treats health care as a microeconomic matter. If I like Birthday Cake Oreos, I get to buy them. That is until Nabisco stops making them (see above).

I can make my point clearer if I switch metaphors. Let’s move from cookies to shopping.

Family DollarThe town where I teach has two independent shopping options: Family Dollar and Dollar General. This is not uncommon for small towns in the midwest (and maybe nationally).

For the fifteen years prior to living in Spring Arbor I lived in Portland, San Diego, and just outside Pasadena. The range of shopping options available was simply too vast to count. There were still Family Dollar stores in San Diego but they occupy a different role in the market.

Once upon a time, J.C. Penny’s and Sears-Roebuck occupied storefronts in small town America (although Spring Arbor might be too small for that). Then Kresge’s gave way to Kmart. Target developed mid-level shopping centers. Walmart used their mass purchasing and efficient distribution system to populate mid-size towns.

Local shop owners couldn’t compete with these national chains and closed down. Then the markets shifted and Penny’s, Sears, and Kmart started shedding stores. They were trapped between the microeconomic market of a small town (that couldn’t produce operating margins) and the macroeconomic priorities of corporate. They were in turn squeezed by super-malls and online behemoths like Amazon.

One result is that the economic map gets more regionalized. It’s a family trip to the “big” city to hit the Walmart Superstore. What’s left in the small town? Family Dollar.

Family Dollar isn’t a bad company. They buy liquidated or mass quantity or imported products and make them available for lower prices than other outlets. If you travel to Spring Arbor and forgot to buy shampoo, they can bail you out after the other stores close.

But it’s hard to think of them as a free market solution to shopping in the small town.

So when Health Care Reformers talk of not having government in charge of health care, they are counting on my meso-economic markets operating like regular markets. They believe that “promoting competition” will allow lower prices, better access, and higher quality.

Why would that be the case? Because national insurance providers would be motivated to build network relationships with local providers. They would tailor insurance coverage in an a la carte manner to that consumers would buy just what they need.

In short, they are assuming health care is like Oreos. I’ll make choices available from a wide range of health care options and pick the one best for my budget, age, and health condition. Give me a plan that maximizes coverage for sore knees but I don’t need contraception or women’s health care.

But when we shift from Oreos to Family Dollar we see the larger issue. Health care facilities in rural America have a hard time making a go of things. They are closing due to lack of doctors, the difficulty of meeting needs of seniors, and the costs of technology. Unless they are part of a national chain that is willing for them to operate at a loss due to social commitments toward quality health care, they are going to go the way of Kmart.

If so, what will be left behind? Urgent Care clinics that provide minimal outpatient services to deal with patient needs. Serious care will continue to be provided regionally. Even that depends on the macroeconomic competition of national chains.

Or it depends upon the larger society expanding the scale of users in the system. Having more people in the system balances the costs across regions and age groups.  It means that the meso-economic markets can operate at a loss because there is a surplus of insured people who aren’t drawing on the system.

Think of it this way. Health Care choices are not like buying Oreos. Reforms that fail to address regional variation will create a patchwork approach to health care that treat Family Dollar and the Mall of America as equivalent. A national approach to health care will look more like Amazon, where access and costs are spread on a national level (if only we could do surgeries via internet!).

Unless, of course, we are okay as a society with widening mortality rates by region (which is already underway). For all the talk about “Americans Left Behind” over the last year, this regional variation is a significant issue. Those are the very people for whom the meso-economic market doesn’t work.

But they’ll still have Family Dollar to rely on even if they can’t afford health care.

 

Max Weber and Trump’s Frustrating Month

Like a lot of other people, I’ve spent the month since President Trump’s inauguration trying to make sense of what’s going on. The sudden shift from policy to posturing and from leading all the people to relitigating the November election certainly has been  disorienting.

Yesterday, I was in a meeting with two students who are taking Sociological Theory via tutorial. Our chapter was covering classical German sociologist Max Weber. After dealing with the requisite explanation of Protestant Ethic and The Spirit of Capitalism, we started talking about rationalization and the forms of social authority.

All of a sudden I had a flash of insight that let me make sense of the Trump phenomenon for the first time since the election.

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Weber identified three Ideal Types of authority: Charismatic, Traditional, and Rational-Legal. A charismatic leader has authority based upon the unique characteristics of the individual. Those internal features fit a Great Man theory of leadership. Textbook examples are people like Abraham Lincoln, Martin Luther King, Jr., and Barack Obama.

Traditional authority draws strength from ties to past practice or lineage. The authority stems from some form of pedigree. The son of the tribal chief is the new leader because he is the son. The religious leader exerts authority because he can explain his role through a long litany of prior religious leaders (think Levites).

Rational-Legal authority depends upon one’s ability to work the system. It is this feature that fits with Weber’s focus on bureaucracy.  The greater the technical skill of a leader with rational-legal authority, the better able to make the system work, the stronger the leader. In the words of my favorite quote by sociologist Peter Berger, “only he who truly understands the rules is in a position to cheat.” The key currency is competency. (One of the curiosities of the election is that HRC ran a rational-legal authority campaign when her big challenge was about individual characteristics.) Knowing how the game is played yields authority.

In talking to my students yesterday, I realized that Trump sees himself as a charismatic leader. Years running a family based organization can make you think you’re special. So is putting your name in big letters on buildings around the world. So can starring in a major reality television program. So can spending fifteen months delivering stream of consciousness speeches to adoring crowds.

Except that Trump is not a charismatic leader. The lack of that internal dynamic may be why he continually overstates his own strengths (“first in his class” “least ant-semitic person” “best golfer among the rich guys“). He played the charismatic leader as his public persona for so long that he must go to incredible lengths to maintain the facade. His supporters buy this but others see through it, which is why his overall favorability has dropped below 40%.

What has stymied President Trump in the first month? The Bureaucracy and the Courts. He’s hit with rational-legal authority from one side through leaks from career officials and from those who put proper protocol above the President’s wishes (e.g., Sally Yates). The Courts seem to combine elements of traditional and rational-legal authority, drawing upon both the history of judicial oversight as seen in the constitution and a focus on previous precedent (stare decisis).

The Bureaucracy knows how the system works and can keep the administration from rash action. The Courts legitimize limitations on an activist administration.

If Trump was truly able to draw upon charismatic authority, we’d have an interesting stand-off. In the short term, President Trump might be able to limit the Bureaucracy and outmaneuver the courts (although this is much harder, as Obama discovered). Instead, Trump and those around him pretend he has authority and consistently misplay their hand (like asking the FBI to quash a story).

Given his relatively weak position in Weberian terms, it’s not at all surprising that he thinks the press is his enemy. It’s the only group he has as a competitive foil. The irony is that he used the press to create his pseudo-charismatic authority and they are likely to withhold that status in the days to come.

Dear Republican Congress: Forget the ACA

To: Speaker Paul Ryan

RE: “Repeal and Replace”

News reports consistently observe that finding a comprehensive replacement for the Affordable Care Act (“Obamacare”) is proving more difficult that legislators imagined. I would suggest that this is because Republicans have consistently misrepresented ACA and cherry-picked data in support of that mischaracterization as part of a political strategy. That has kept you from an honest appraisal of the pros and cons of the ACA.

As one example, a frequent talking point claims that the premiums on the exchanges are skyrocketing. Silver plan premiums for Phoenix went up 145% over 2016! (You never mention that premiums for Indianapolis went down by 4%). In addition, you consistently failed to address the ACA’s subsidy provisions that covered those fluctuations. Consider the following excerpt from a chart from the Kaiser Family Foundation.

screen-shot-2017-02-11-at-12-05-33-pm In addition to not being honest about the net impact of the premium coverage (middle columns of the chart) you have consistently blurred the distinction between those with employer-based coverage and those purchasing non-group coverage.

Regardless of these talking points, I’m willing to give you a pass. As you work out details of your new Replace plan, I want you to pretend that the Obama administration never happened. There is no Affordable Care Act (I’ve got a kind of George Bailey image going).

I’m suggesting that your wonderful replacement plan should simply address all of the concerns that existed with health care in 2008. You don’t have to fight Obamacare. You can just “provide common sense solutions that solve people’s problems“.

Let’s start with costs. Here is a Kaiser Family report from 2008 that shows the increasing costs of health care. As you likely know, the premiums paid by families more than doubled over the previous decade while salaries were growing very slowly. Remember, this was before the great recession hit.

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Changing this cost curve is challenging, especially without decreasing the quality of care. But you and others have repeatedly criticized the ACA for not reducing costs at the family level. So please examine how we might have made changes in the first part of the century to significantly slow the rate of growth.

Kaiser points out that insurance costs doubled for both employer expenses and the employee contribution over the decade.

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Of course, not all Americans have employer-based insurance. Many opt out of insurance coverage altogether. They may rely on emergency care as needed due to the Reagan-era law mandating that care (with its associated cost-shifting to insurance plans). The CDC completed a report on insurance coverage trends and showed the following data on the percentage of Americans uninsured in 2007.

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There is a real need to attend to increasing the number of people insured. As those percentages increased, the strains on health care go up. When we look at the fact that these percentages are based off an increasing population, the numbers of people impact go up sharply.

In the CNN debate this week, Senator Cruz suggested that everyone had a right to access health care, in contrast to Senator Sanders’ claim that health care was a right. This is a matter of political debate, but your plan should do something to address the microeconomics of how people purchase plans to drive down the number of uninsured.

One component impacting costs has to do with the avoidance of preventative services. For those without ready access to health care, we wind up with a bizarre version of the old Fram Oil Filer commercials: you can pay me now or you can pay me later. Acute care is far more expensive than preventative care over the long run.

In 2007, the Robert Wood Johnson Foundation put out a report on the potential impact of preventative care. Here is the conclusion to their executive summary.

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I said we weren’t worrying about ACA but here’s another misrepresentation you’ve made. Increasing preventative coverage for all has a market impact of raising rates in the short term but lowering costs over the long run (or at least inhibiting their growth). To criticize the short-term impact without admitting the long-term benefit is disingenuous.

One other factor that shapes health care in the US has to do with disparity across the states. The Kaiser Family Foundation examined health care expenditures in 2008 and showed the following chart.

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This shows the tremendous disparity which is a likely result of population size although there are some other factors going on as well. This shows the difficulty of managing a national approach to health care when we really have 50 independent markets. I know you are in favor of allowing competition across state lines but that would seem to result in picking winners and losers, with lower expenditure states helping subsidize high expenditure states (through the insurers not the government).

This disparity also points out the inherent limitations in any approach to health care funding that uses block grant approach. While that may limit federal outlays for health care, it will have significant repercussions at the state level.

So we don’t need to talk about promises of keeping your doctor or of mandates or of medicaid expansion. Those are all aspects of the Affordable Care Act. While I’d argue that the years since ACA implementation have begun to shift health care in positive ways, I don’t think you can agree.

Instead, I ask you to develop a plan that solves health care issues as they existed in 2008. That requires a plan that lowers the growth in premium costs over time, decreases the number of uninsured, maintains a level of health care quality through preventative care, and that addresses inequalities across the nation.

I look forward to your common-sense solutions.